The global economy will cope with the consequences of the war in Ukraine and the continued high inflation somewhat better than initially feared. This is not least due to the developments in China, according to the updated forecast of the International Monetary Fund (IMF) on the global economy.
Growth will slow to 2.9 percent this year compared to 2022 (3.4 percent). But the prospects are “less bleak” than assumed in October, wrote IMF chief economist Pierre-Olivier Gourinchas. This is due to “positive surprises” and an “unexpectedly high level of resilience” in many economies, according to the report. A driver of the global economy could be China’s departure from the zero-Covid strategy.
The IMF does not expect the global economy to slide into recession this year – an option that the economists did not rule out in the autumn. According to Gourinchas, the current forecast could mark a “tipping point” with growth bottoming out while inflation eases. Should China make faster progress with the vaccination against the corona virus, this would ensure a recovery. However, the report also lists a number of risks that would result in a deterioration in the economic situation: a further worsening of the corona situation in China, an escalation of the Russian war of aggression in Ukraine and a debt crisis due to the strict monetary policy of the central banks.
Europe coped surprisingly well with the energy crisis
In its updated forecast, the IMF still expects global growth of 2.9 percent this year. That’s 0.2 percentage points more than assumed in October – but compared to the past two decades, growth is below the “historical average”.
Growth of 3.1 percent is expected for 2024. For the eurozone, the IMF is forecasting growth of 0.7 percent this year – growth 0.2 percentage points higher than previously assumed. In Germany, gross domestic product (GDP) is only expected to grow by 0.1 percent in 2023 – but that is an increase of 0.4 percentage points in the estimate. In the coming year, the economy in Germany is then expected to grow by 1.4 percent – that is 0.1 percentage points less than previously expected.
“The forecast for low growth in 2023 reflects the rate hikes by central banks in the fight against inflation – especially in developed countries – as well as the war in Ukraine,” the forecast said. A decline in growth is forecast for around 90 percent of industrialized countries this year.
According to the report, the fact that the global economy is now expected to grow faster than assumed in October is also due to the fact that Europe has coped better than expected with the shocks in the energy sector caused by the war in Ukraine. Despite severe headwinds, gross domestic product in the third quarter of 2022 was surprisingly strong in numerous economies – including the United States and the euro area.
Inflation further increased
According to the IMF, the rate hikes by the central banks also had an effect. There are signs that the tight monetary policy is slowing down inflation. “But the full effect will probably not be felt before 2024,” the forecast continued. However, around 84 percent of the countries are likely to have lower consumer prices this year than last year.
For 2023, the IMF expects an inflation rate of 6.6 percent worldwide, and in the coming year it should be 4.3 percent. Nevertheless, it will take a while before price stability returns with an inflation rate of two percent. In the vast majority of countries, inflation in 2024 will still be above pre-coronavirus levels.
IMF chief economist Gourinchas stressed that China’s sudden reopening has paved the way for rapid economic recovery in many countries. However, this could falter if the economy in China is slowed down again by violent corona waves. According to the IMF, growth there in 2022 was 3 percent. It was the first time in more than 40 years that China’s growth has been below the world average.
